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Best of the Exchange: The Other Side of Bear, Recognition, and Deflation


Bear Stearns collapses, Minyans come together.

With the launch of The Exchange, Minyans now have a forum in which to express their viewpoints, comment on articles and meet other like-minded financial souls. Minyanville publishes "A Best of the Exchange" each Friday to highlight the many insightful posts and discussions going on behind the scenes.

Become part of The Exchange and let your voice be heard!

(Editor's Note: Some of the following posts have been modified slightly from their original form.)

Toddo shared a bit of himself, and offered another viewpoint on the Bear Stearns (BSC) collapse. The Minyanville community poured out support.

Minyan Stewart:

Thanks for giving Zoe an extension on life instead of putting her down.

Amazing what these critters bring to our lives beyond the warm and fuzzy. We've experienced nine of these wonderful creatures in our thirty eight years together. While nothing will replace the memories of Zoe, I'd encourage you to consider another addition from a local shelter. May take a bit to get comfortable with Phoebe, but each seems unique and always interesting.

Money isn't all.

Minyan Sam:

Todd, my deepest sympathy on the passing of your friend. I myself have been there numerous times with both dogs and cats. It's never an easy time.

On your concern for Bear employees. I understand your concern for them and I wish them all the best. They are however, part of a system that has devastated the lives of millions of average Americans who have had their jobs sent overseas so those on Wall Street and in the corporate board rooms could become extraordinarily wealthy.

I am 63 years old and retired at the end of last year. I have always worked for an hourly wage. I have been an auto mechanic, a helicopter crew chief in Vietnam, a machinist and for 28 years a nuclear power plant operator. I, like most people, are programmed to work with both my hands and my brain.

I was fortunate enough to grow up in America when those traits were respected and rewarded. Unfortunately for the majority of the American people those days are gone. I was fortunate enough not to go into debt without good reason and was totally debt free for 12 years prior to my retirement. I am far from being wealthy, but assuming we don't have a total financial collapse in this country (a risky assumption at this point) I should be OK.

It saddens me to see what politicians and their super wealthy handlers have done to this country.

Professor Depew uncovered some interesting facts about our recent bull market ... that it wasn't in fact a bull market.

Minyan Mark:

Another great article by Professor Depew!

I have another point of recognition in mind. That is the point of recognition when people realize that the central banks have been fooling around with the currency so much that it is no longer considered a good store of wealth.

I recommend reading
The Panic of 1819 by Rothbard for those of you that can slog through it.

What happened in those years seems to me to be a microcosm of what's going on with the central banks today. They all want to increase speculation in order to spur economic activity. The result in 1819 was unstable currencies that depreciated greatly against specie (gold and silver). We finally went to a gold standard to stabilize our currency. I believe that the world will eventually have to do the same thing (all over again).

The nationalization of debt is a step in that direction.

Minyan David:

Alice in Wonderland … or Brave New World?

In the new economy'if we don't have prosperity we simply redefine it. It works for things like freedom and torture doesn't it?

Instead of 'A chicken in every pot and a car in every garage' we get a devalued currency and increasing debt in every household.

Look how many companies in the Fortune 500 have a negative book value. How does a company like General Motors (GM) even stay in business?

The answer in the new economy is cash flow not solvency.

I'll say it again:

There is a man at the door, playing the flute and he wants to be paid.

Professor Shedlock sifts through rubble that is the credit markets to seek out clues of impending deflation.

Minyan John:

It would be nice and easy if you could always explain inflation or deflation in terms of money supply. But you can't. In fact, what we have now is neigher; or rather, it is both: asset deflation and commodity inflation. Alas, we normally use assets to purchase commodities.

The real question is never the money supply, but the money supplied to the people who need it to clear the markets. That's normally wage earners. For 30 years, the median wage has been stagnant, and shortages in purchasing power have been made up solely by consumer credit. Which is to say, the whole thing is a ponzi-scheme.

All ponzi-schemes collapse. The only surprise is that anyone should be surprised.

Minyan Paul:

Corporations are up to their ears in debt. They hold cash, of course, but have debts 20, even 50 times greater. Corporations either loaded themselves up on debt during the crazy years just past or they were bought out by vulture funds, loaded to the gills with debt, then resold to the public.

Loading up on debt was profitable until recently; companies restructured themselves into hostile takeover funds and got into mortgage finance because they had to to survive. Sears (SHLD) and K-Mart is an example.) The whole era was like a feeding frenzy of sharks.

Corporations today have balance sheets more like Citigroup (C) or Bear Stearns than like corporations did in 1960. The available funds you think you see are simply not available for rising wages. Without serious profits the corporations cannot carry their debt mountains.

The cash hoards are necessary for corporate survival as an essential part of managing their debts. Without them they would lose access to the debt markets and die as fast as Bear Stearns did. Their notes would be called, they couldn't roll over money market instruments, etc., because people would figure they didn't have the money to pay their debts. And they wouldn't.

Some very big companies, companies people think are very rich, aren't going to make it this time.
No positions in stocks mentioned.

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